Managing the Exit Tax Burden of the QALICB

Part One of this article explained that when a new markets tax credit (NMTC) investor exercises a put option (the exit transaction) in a leveraged transaction at the end of the seven-year compliance period, it is possible that the qualifi ed active low-income community business (QALICB) will not recognize any cancellation of indebtedness (COD) income. Part One also explained that if COD income is recognized, the amount of income should be the difference between the issue price of the “B loan” and the fair market value of the B loan when the put is exercised.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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